Why Is Patterson-UTI (PTEN) Down 39% Since Last Earnings Report?

A month has gone by since the last earnings report for Patterson-UTI (PTEN). Shares have lost about 39% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Patterson-UTI due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Patterson-UTI Reports Wider Q4 Loss on North American Weakness

Patterson-UTI Energy reported net loss per share of 44 cents, wider than the Zacks Consensus Estimate of 41 cents and the year-ago loss of 4 cents. The underperformance reflects weak North American drilling activity.

However, revenues of $492.3 million beat the Zacks Consensus Estimate of $487 million on higher-than-expected sales from the Pressure Pumping unit. To be precise, revenues from the segment came in at $161.4 million, above the Zacks Consensus Estimate of $151 million.

Patterson-UTI’s sales, though declined 38.1% from the year-ago quarter.

Segmental Performance

Contract Drilling: This segment’s revenues totaled $270.8 million, down 30.1% year over year. Meanwhile, the unit lost $19.5 million in the fourth quarter, compared to a profit of $26.9 million in the year-earlier quarter.

While average rig revenues per operating day increased to $23,980 from $22,970 in the fourth quarter of 2018, it was more than offset by a 14.4% rise in average daily rig operating costs. Consequently, average rig margin per day deteriorated 10% year over year to $8,450.

The unit was also plagued by fall in both the operating days (from 16,869 to 11,291) and the number of rigs operational (from 183 to 123).

Pressure Pumping: Revenues of $161.4 million dropped 49.5% from the year-ago sales of $319.7 million as activity fell. However, the segment’s operating loss narrowed to $26.6 million from $121.9 million in the fourth quarter of 2018 on lower operating cost and the absence of impairment charges.

Directional Drilling: The unit’s revenues totaled $38.6 million, down 31.6% year over year due to lower rig count. Nevertheless, the segment managed to restrict its operating loss to $9.3 million as against the much wider $95.9 million loss in the corresponding quarter of 2018. A year ago, results were largely hurt by an impairment charge of $89.7 million.

Other Operations: Revenues came in at $21.5 million, 33.6% below the year-ago quarter figure of $32.3 million. However, the unit incurred a narrower quarterly loss of $3 million, as against the loss of $4.5 million recorded in year-ago quarter. The improvement was mainly on account of lower costs.

Capital Expenditure & Financial Position

During the quarter, Patterson-UTI spent approximately $64.2 million on capital programs (as against $160.9 million in the fourth quarter of 2018). As of Dec 31, 2020, Patterson-UTI had $174.2 million in cash and cash equivalents and $966.5 million in long-term debt.

The company also informed that it repurchased 22.6 million of its shares for $250 million during the full-year 2019 and shelled out $33 million as dividends.

Guidance & Outlook

Patterson-UTI management said that its rig count bottomed out in the fourth quarter and will go up slightly in the early part of 2020, primarily driven by the Permian Basin.

For the first quarter of 2020, the company forecasts $23,200-$23,500 in average revenue per operating day, while average rig operating cost per day is pegged at around $15,000. The onshore driller expects an average of 77 rigs to be operational under term contracts during the period and 58 for the full-year 2020.

In pressure pumping, Patterson-UTI sees the unit to be negatively impacted in the March quarter due to the abrupt stoppage of operations by a major client. However, Patterson-UTI sees things getting better during the later part of the year, riding on the company' proven steps.

Meanwhile, drilling and completion activities are expected to be under pressure for the time being with upstream energy companies choosing to remain conservative with their investment budgets. As such, Patterson-UTI forecasts full-year capital expenditure to come in approximately $250 million, 28% below the 2019 spending of $348 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -16.45% due to these changes.

VGM Scores

At this time, Patterson-UTI has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Patterson-UTI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.